What are Pink Sheets?
Pink sheetsare companies which are traded in a secondary market over-the-counter (OTC). The companies bid ask quotes are published by Pink Quote instead of an exchange like the Nasdaq or New York Stock Exchange. Small companies will start out trading as a pink sheet in order to take an initial step towards being listed on one of the major exchanges, while for other large stocks which have been delisted, it becomes their final resting place.
History of Pink Sheets
In the early 1900s many brokers and investment houses traded companies over-the-counter for retail clients. Investors had a tumultuous time trying to find accurate bid ask spreads for these companies, and even when investors found a quote, it often times was delayed by days or weeks. Out of this madness arose the National Quotation Board (NQB). The early founders of the NQB set out to provide a comprehensive list for over-the-counter companies on a weekly basis. This provided investors the ability to find quotes on a large number of companies. This weekly publication was printed on pink paper, hence the term pink sheets.
Where are Pink Sheets Traded?
While pink sheets are traded over the counter, they are not part of the Over the Counter Bulletin Board (OTCBB). Transactions for pink sheets are handled by the National Quotation Bureau (NQB), while the Nasdaq handles trades over the Nasdaq.
Pink Sheets Listing Requirements
Companies listed as pink sheets have virtually no requirements to trade. These companies are not required to file with the Securities Exchange Commission (SEC), have no minimum financial requirements and are not required to release any quarterly financial reports. While pink sheets have very few regulations the trading system is only open to registered brokers who are held to the standards of the Financial Industry Regulatory Authority (FINRA).
Trading Hours of Pink Sheets
Trading for pink sheets takes place between 9:30 am – 4:00 pm EST. The trading holidays for the pink sheets are the same as the Nasdaq market.
Risks Associated with Trading Pink Sheets
Trading pink sheets is not advised by the SEC, so this is some indication of the risks associated with such a venture. The fact that there is little to know financial information on the companies, coupled with the the thin trading volume, creates an environment for heavy manipulation. Even if a trader is able to look pass the thin trading volume, the bid/ask spreads on pink sheets can be anywhere from 25-75%. This would mean upon taking your position, you have already loss quite a bit of money. Aggressive speculators hope to pick a company that will someday go beyond the pink sheets and actually be listed on one of the major exchanges.
Where can I find a List of Pink Sheet Companies?
Traders can find a list of pink sheets by visiting the Pink Sheets Website.